Benefit of Increasing your Prices

Benefit of Increasing your Prices

I’ve been a business coach for about 12 years, and I’ve coached hundreds of businesses in dozens of industries. Now I’ve got a team of business coaches that are doing the same thing. I’ve got a whole bunch of stories that I can share with you to give you some insight into what some people did to get the results they got in their business.

 

Grab yourself a cup of coffee, and let’s have a chat about some real life lessons of a business coach. I’m going to give you some examples of what worked really well with clients, and I’m going to give you some examples of things that didn’t work so well. Hopefully that may then help you grow your business.

 

Discounting vs Increasing Prices

 

So this week I’m going to start off with one of the challenges I hear many people are faced with. I’ve done a couple videos now on understanding the differences between discounting and increasing prices. I find I get a lot of resistance from people around increasing their prices, which is kind of strange. The reason for it is that you don't like it when somebody increases prices on something you’ve been buying on a regular basis, and you’re worried your clients are going to feel the same way. But the reality is that prices do have to move, and they move for varying reasons. Quite often they go up because the cost of living goes up. You’ve got to pay higher wages. You’ve got to pay more for electricity. Your fuel costs are more, your rent goes up every year automatically. All of these things going up around you are eroding the profitability in your business. So it’s pretty much without surprise that if we don't put our prices up, you’re going to be making less money.

 

Coaching the Cafe Owner

 

One of the clients I worked with many years ago, (I’m going to use this one as the first real life lesson from a business coach), is a client that I worked with in my very early days. I’m talking maybe 10 years ago. They owned a cafe and in this cafe, they had a captured market. They were in a shopping center where there was very little choice besides fast food outlets. There was a McDonald’s there, a fried chicken joint, a few other outlets there, but no one else who really had the sit down cafe type of thing.

 

Straightaway in my mind I knew this client had the opportunity. That’s the first lesson. If you are the only one, well then you’re not competing on price. You might think you are, but you’re not. If you’re the only person that’s got a sit down cafe in the shopping center, then you’ve got a uniqueness straightaway. Whether it’s a cafe or any other type of business, if you’re the only one in a particular area, a particular geographic location that offers what you offer, then straightaway you’ve got a uniqueness. Now that doesn’t mean that you can go charging a whole bunch more than everybody else and get away with it, because people will travel from one place to another to get what they want if they know they can get it for less. It depends on your product or service. In the instance of a cafe, that’s different. People aren’t going to go that far to get themselves a cup of coffee. They’re going to be happy to pay a little bit more.

 

So what we did was…

 

I remember saying to the owner of the cafe, ‘You just need to put your prices up. The reality is that, yes, you may upset some customers, and there will be some that are happy and they’ll stay, and there are some that will also be upset and they’ll stay.’ I said, ‘Let’s give this a go. Let’s just put the prices up and give this a trial for a couple of weeks. See what happens.’ I had a huge pushback, huge resistance by this business owner to put their prices up. Even though their service was fantastic, even though the atmosphere of the cafe was really good, the quality of the food and beverages they served was top notch, they still struggled. Even with all the feedback coming from their clients, they still struggled. This cafe did around 900 transactions a week. It’s not a huge cafe. It’s not a tiny cafe. At 900 transactions a week, you’re looking at serving maybe 100-odd people a day. And out of those, if you think it’s 100-odd people a day, 900 transactions, there may be 500 customers, 600 customers. So a lot of that is repeat transactions because it is a captive market.

 

But I said, ‘Let’s just try it for a couple of weeks and see what happens.’

 

Well after two weeks I said to the business owner, ‘How’s it going?’ They said, ‘Oh, I’ve had a lot of complaints.’ I said, ‘A lot is not a quantifiable number, how many is a lot?’ The business owner said to me, ‘Ben, I’ve had two complaints...’ I said, ‘Wow, only two complaints out of 1800-odd purchases, only two people noticed or complained about the prices shifted up.’ And I’m talking about a 10% increase. So a $4.50 cup of coffee became $4.95. A sandwich that was $3.00 became $3.30. Everything was up by 10%.

 

I said, ‘Those two people that complained about the price increase, tell me about those people.’ He said, ‘Well the first one, she’s a really regular customer.’‘Oh, okay,’ I said. ‘So a regular customer. How regular?’ ‘Comes in every day for breakfast and for lunch, works in the shopping center.’ I said, ‘So have they stopped coming?’ She said, ‘No, they still come.’ I said, ‘Okay, so you haven’t lost the customer. Who was the second customer?’ She said, ‘It was one of my staff.’

 

Fear of increasing prices

 

Now, to me, this is a common thing that happens. We have a fear of raising our prices, yet when we do it, what we discover is most people are okay with it. They understand... And if you do lose customers by putting your prices up, they’re probably the customers you don’t want to deal with anyway. The extra profit you make will actually cover the losses from those that leave plus make you more profit.

 

You do the numbers... Sit down and write down what your current gross margin is, put your sales up by 10%, (your gross margin and your net margin’s what you need to do). Put your current prices up by 10%, and have a look at number one, how does it affect your bottom line? Usually that’ll go up. Then work out how much of a drop do you need to see in your bottom line before it’s not worthwhile doing. It’s really important that if you’re going to be worried about putting your prices up, the first thing is to get to the facts. Let’s work out what the numbers are and know what it is.

 

In this particular situation, after two weeks we discovered there were a couple of unhappy people, but overall, everyone was okay with it. Once again I’m talking about a business that had great systems and great delivery.

 

Providing better product

 

The second thing that we did there to increase the price was we got rid of normal sandwiches and we created a range of gourmet sandwiches. Thicker bread, more exotic lettuces, tomatoes, organically grown vegetables. All of a sudden the quality of the food lifts up, and you can charge a little bit more. Sure it costs a little bit more to buy the stock or buy the product, but you can charge a lot more for the end product. So that was the other thing that we did, and nobody complained.

 

I challenge you, as homework, as something to do from watching this video, go and put your prices up. Even if it’s just 5%, every percent you add onto the top line will go onto the bottom line. Product prices aren't going to go up, the cost of buying them is not going to go up, and your fixed expenses aren't going to go up. All that’s going to go up is the sales. That means that you’re going to increase your profit. If you want to make more money, that’s what I suggest you do.

 

 

About the Author

 

Ben Fewtrell is a sought-after Business Coach, Keynote Speaker and trainer who has featured in Virgin’s Inflight Magazine and Entertainment Portal, SKY Business and “Secrets of Top Business Builders Exposed”. He is also the host of the popular Business Brain Food Podcast where he interviews leading experts on anything and everything business.

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